Tokyo - Ahead of the G20 meeting in Chiba this week, a WWF report shows how setting up a domestic emissions trading scheme (ETS) could turn Japan into a credible leader in the global fight against climate change and bring massive benefits for the country’s flagging economy.

Being the country’s first report of its kind, "Decarbonizing Japan" finds that the mid-term and long-term benefits of implementing an ETS are much bigger than the costs. While in the absence of international trading the costs in 2010 may outweigh the immediate benefits of an ETS somewhat, by 2015 the economic merits from nurturing green industries already amount to 14 trillion Yen (US$ 137 billion / Euro 89 billion). These benefits make domestic policy measures to cut climate pollution while boosting the economy and creating new jobs a far cheaper strategy than Japan’s current approach of buying up emission reduction credits abroad.

“Japan is far from reaching the emission cuts pledged under the Kyoto Protocol and currently lacks credibility when it proclaims itself a leader in the fight against climate change,” said Hans Verolme, Director of WWF’s Global Climate Programme. “If Japan were to establish an emissions trading scheme it would signal to the world it is indeed serious about avoiding dangerous climate change and that this government is aiming for a successful G8 Summit.”

In WWF’s view, the government’s current Kyoto Achievement Plan fails to deliver due to a lack of overarching policies and its heavy reliance on voluntary action. According to the report, however, an ETS would guarantee certainty of achieving the Kyoto target and cost-efficiency in doing so. As the centerpiece of a broader policy package, including enhanced energy efficiency standards or a carbon tax for sectors not covered by the ETS, it would also drive the decarbonization of the whole society.

Proposing the design of an environmentally effective and economically efficient ETS for Japan, the report describes emission trading as an effective approach to cutting the country’s dependence on primary energy imports, down to 73% by 2015 with an ETS as compared to 82% without ETS. The scheme could even reduce unemployment, to 4% by 2015 as compared to 6.3% under a business as usual scenario without emission trading.

“After many years of stalling by industry, the debate about emissions trading in Japan gained real momentum recently, with the Japanese cabinet, the Ministry of Economy, the Ministry of Environment, and many parliamentarians now actively considering such a scheme,” said Hans Verolme. “If Japan wants to be considered a climate leader at the G8 Summit in Toyako in July, the creation of an emissions trading scheme will be an essential component of the climate solutions package it presents.”

1) The report Decarbonizing Japan – Proposal for a Domestic Emission Trading Scheme was first published in 2007 – in Japanese language only. This is the first time the report is published in English language. The press release, the full report and a summary document can be found online at: http://www.panda.org/climate and http://www.wwf.or.jp/climate

2) The initial intention of the report was to function as a counter-proposal to the government’s Kyoto Target Achievement Plan, outlining why and how emission trading is cheaper and more effective in achieving what the government plan aims for. In addition and beyond this target, the report highlights the manifold benefits of emission trading for the Japanese economy and society in an increasingly carbon-constrained world.

3) To propose an ETS for Japan which is environmentally effective and economically efficient, the report recommends to establish a downstream cap and trade scheme which covers carbon dioxide (CO2) emissions from the energy conversion sector, the industry sector and the industrial process sector (representing 64% of Japan’s total CO2 emissions and 60% of Japan’s total greenhouse gas emissions). In this scheme, a cap needs to be set in accordance with the government’s plan to achieve the emission reduction target it committed to under the Kyoto Protocol. For the sake of an early start within the first Kyoto commitment period (2008 to 2012), the proposed scheme adopts grandfathering for initial allocation of emission allowances. This means that the distribution of allowances among companies falling under the scheme is free of charge. However, given the lessons learnt from European Union Emission Trading Scheme (EU ETS), the report advocates for gradually shifting towards benchmarking and auctioning where companies have to buy allowances. More details about the concrete outline of the domestic emission trading scheme for Japan can be found